The NEF / TJN mythbuster series has got off to a great start with a joint paper by Howard Reed and Tom Clark. In it they argue that Britain is not broke. I've already featured one of their diagrams, showing how low, historically, our debt is, but there's another well worth sharing, which is just how low our interest payments as a proportion of GDP are right now. It looks like this:
Now, there's no doubt this cost has increased from the historic low point to which Labour took it, but we're still lower than at any time from 1945 to 2000, a period of enormous prosperity in the main.
So what is the issue?
Or is it just that everything Osborne says is a myth?
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It’s not debt as most people understand it is it Richard.
The functional part of this transaction is the other side of the balance sheet – saving income into pension funds that helps pay so-called private pensions.
This is debt in the same way as the salary in your bank account is debt. Technically true, but in reality its the asset side that is more important and the causal element.
So why don’t we start calling them National Savings and saving interest payments?
Very good point
I frequently argue that without the crisis we’d be short of high quality debt for pension funds as the baby boomers retire
That might be valid apart from the fact that pension funds and insurance companies only own 23% of gilts. Better to call it interest payments to finance imports as overseas holders are 30%.
Ane we own their gilts, of course